Real Estate & Retail

Ambassadair likes suitor: Chicago-based Waveland Investments might have jobs for ATA execs if it lands travel club

September 19, 2005

Ambassadair Travel Club Inc. may chart a new destination with the help of a Chicago private equity firm whose holdings range from gas station chain Clark Brands to coffee-pot-maker West Bend.

Waveland Investments LLC is the face behind Waveland Holdings LLC, an entity named in court records as signing a letter of intent to acquire Ambassadair from bankrupt parent ATA Holdings Corp.

While Ambassadair said it remains profitable, despite ATA's troubles, it has lost more than 20 percent of the 32,000 members it had before ATA's Oct. 26 Chapter 11 filing, IBJ reported last month.

ATA, parent of ATA Airlines, won court approval this month to keep sealed the preliminary terms of Waveland's proposed Ambassadair acquisition. Both sides are still hammering out a deal.

Records in U.S. District Bankruptcy Court in Indianapolis show that other potential bidders for Ambassadair will have until the end of the day Sept. 26 to submit a bid. Waveland also could submit another bid, with an auction to begin Sept. 28. A hearing to approve a sale of the club is set for the following day.

But top insiders of the travel club founded in 1972 by pilot and Latvian immigrant George Mikelsons are rooting for Waveland, which Ambassadair search firm Adelphi Capital Management of Washington, D.C., identified as the best potential buyer.

An Ambassadair executive said Waveland Investments also has ties to past ATA officers and that some of them could come aboard the reconstituted Ambassadair. Even ATA Chairman Mikelsons could have a role, said the insider, who asked not to be named.

Mikelsons retired last month as president and CEO of ATA Holdings, but he continues as non-executive chairman through at least the end of the year. As part of his retirement package, Mikelsons signed a three-year non-compete agreement. It's not clear whether a role in a travel club that does not have its own aircraft fleet would constitute an infringement.

Ambassadair plans more than 640 trips worldwide in 2006. Blocks of tickets are purchased aboard commercial airlines or aboard MD-83 charter jets flown by Atlanta-based TransMeridian. Until the recent deal with Trans-Meridian, ATA carried most of the club's members.

Ambassadair's president, Sally Brown, said she could not comment on the Waveland discussions. Last month, Brown said potential buyers would inject more capital into Ambassadair and help propel its growth.

Although some of the club's management is hoping to link up with Waveland, the Chicago firm could face stiff competition at auction.

"I would be surprised if Ambassadair doesn't attract a lot of bidders," said Henry Efroymson, a veteran Indianapolis bankruptcy attorney tracking the ATA reorganization. At least as far as maximizing the sale price of Ambassadair, "I think ATA and its creditors hope so."

Waveland principal Phil Calian said he could not comment about his firm's interest in Ambassadair because of a confidentiality agreement.

Before founding his own private equity firm, Kingsbury Partners, in 2002, Calian worked with Chicago real estate baron Sam Zell to help restructure American Classic Voyages Co., a travel and leisure company whose holdings included the Delta Queen and Mississippi Queen riverboats.

Records show Calian was CEO of American Classic, which fell into bankruptcy shortly after the 2001 terrorist attacks scared off leisure travelers.

Waveland in 2002 made a bid worth nearly $14 million for American Classic properties, but eventually was outbid at auction. Calian joined Waveland in 2003.

Waveland has had success acquiring all or parts of companies in bankruptcy. In 2003, it partnered with another investment firm to buy the assets of North Chicago-based Beverly Clark Collections, one of the nation's largest manufacturers and distributors of wedding products.

Later that year, it teamed with an industry investor and existing management to acquire the Illinois-based Clark gasoline station chain.

Most of its big deals haven't involved bankrupt companies. Waveland participated in startup funding of Potbelly Sandwich Works, a Chicago firm with restaurants in Indiana and eight other states. Waveland pulled in Starbucks founder Howard Shultz to take a seat on Potbelly's board of directors.

Waveland also invested in Indiana Business Bank, a startup on the north side of Indianapolis targeting small and mediumsize business customers disenchanted by continual bank mergers.

Business savvy will be a must for the buyer of Ambassadair, despite the club's claim of consistent profitability in its 32 years.

William Carroll, a researcher at the School of Hotel Administration at Cornell University in Ithaca, N.Y., said tour firms face stiff competition from online sites that offer sophisticated packages and competitive prices thanks to the volume generated from a nationwide clientele.

Travel club operators face continual costs of retaining members while margins in the industry have been razor-thin.

"It's a tough market," Carroll said, "unless you happen to have discovered airplane travel to the Fountain of Youth, and you're wellknown."

Traditionally, Americans tend not to like the "herd mentality''of travel clubs, which is one reason they're not as popular here as in Europe, said Chekitan Dev, a Cornell marketing professor teaching brand management and a consultant to Fortune 500 travel and hospitality firms.

Yet the overall market for leisure travel looks promising, he said. "It is recovering faster and more robustly than business travel."

The sooner Ambassadair conveys stability the better, Dev said, noting the negative association with troubled ATA and the inherent concerns travelers have about the prospect of ruined vacations.

"For troubled companies, it's going to be especially difficult. People are loath to come close to anything that smells of trouble," he said

Ambassadair may even have to do some rebranding to further distance itself from ATA, Dev said. He noted how Orlando-based ValuJet, which virtually imploded after one of its planes caught fire and nose-dived into the Florida Everglades in 1996, eventually reconstituted itself as AirTran Airways.

Ambassadair has members from about 45 states, though most are from Indiana and many of them fondly remember the early days when pilot Mikelsons flew them aboard a Boeing 720 to cities around the globe.

How much more change they're willing to endure is anyone's guess. Ambassadair recently severed most of its ties with Mikelsons and ATA.

A company in Chapter 11 reorganization selling a profitable subsidiary like Ambassadair is rather uncommon, Efroymson said.

"It really doesn't come up very often because usually the companies tend to pledge assets of all of their subsidiaries for borrowing" money, he said.

ATA is eliminating about one-third of its fleet as it tries to climb out of the Chapter 11 hole. It has slashed almost 3,000 jobs from a work force that once topped 7,000. Once the busiest carrier at Indianapolis International Airport, ATA now has only four daily flights here.

The airline plans to submit its reorganization plan by year-end, though many analysts are skeptical it has a role in an already-crowded scheduled market. The cost of a rapid market and fleet expansion just before 9/11 precipitated the Oct. 26 bankruptcy filing.
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